Overnight through early Wednesday morning saw the figurative wheels fall off the corn market as the December 2025 issue fell to a new contract low.
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From a structural point of view, the extended selloff indicates the commercial side is growing more comfortable with expected supplies in relation to expected demand (NOT USDA BASED).
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During one of my recent road trips, I tuned into an oldies station and Kenny Rogers’ classic “Lucille” happened to come on. This is one of those songs when the parodies were better than the original, with one version changing the key lines to, “You picked a fine time to leave me, loose wheel”. What made me think of this pre-dawn Wednesday? A couple things: First, the news continues to remind us a screw is loose, or a nut has run amok, either way usually resulting in a wheel (or more) coming off. Second, looking at the corn market specifically, the wheels have literally come off leaving us with nothing but the red rocket wagon sliding down the hill. I’ll talk more about this momentarily. A look at today’s quote screen shows the US dollar index (USDX) gaining back some of Tuesday’s selloff, adding as much as 0.34 Wednesday morning. It’s interesting to hear the continued debate/arguing over what the next move by the US Federal Open Market Committee should be. Despite all the childish name calling in Washington, D.C., the Fed fund futures forward curve continues to show we shouldn’t expect any move until possibly September, with a possible hike creeping into the picture.
And now, the corn market. Let me begin by saying King Corn made a feeble attempt at rallying early in the overnight session as the December issue quietly added as much as 1.5 cents. But then, as mentioned in the open, the wheels fell off. After poking its head to a high of $4.3050, Dec25 (ZCZ25) fell to a low of $4.21, down 8.0 cents from Tuesday’s close. All this is well and good, and should be expected given corn’s Round Number Reliance, but as the late Paul Harvey would say, here’s the rest of the story: Recall when I talked about Dec25’s contract low of $4.28. That is gone now, with the next target the round number of $4.20, then $4.10, and the big round number of $4.00. What happened? Corn is a weather derivative, possibly the key weather derivative market in the Grains sector, and weather factors have come together in an equation that results in larger expected supplies. It really is this simple. If the market price is going down, in this case the December futures contract, it means the supply curve is shifting outward, an Econ 101 way of saying expected supplies are increasing in relation to expected demand. Again, not based on USDA’s imaginary numbers.
The December corn contract broke through to this new despite weekly stochastics already sitting below the oversold level of 20%. Keep in mind the long-term monthly chart shows a sideways range between the August 2024 low (Dec24) of $3,85 and the February 2025 (Dec25) high of $4.7975. Due to the Round Number Reliance, I view this range as $3.80 to $4.80.
What does this mean for Dec25?
- Given new-crop fundamentals continue to grow less bullish/more bearish, the door is opened wider for a test of the low end of the range near $3.80. Our key reads on real fundamentals continue to be new-crop futures spreads and the percent of calculated full commercial carry covered.
- However, Dec25 priced at $4.21 puts it in the lower 24% of its price distribution range based on weekly closes-only back through the 2020 contract. A move to $3.80 would put it in the lower 11% of the range.
- Funds held a sizable net-short futures position, last reported at 107,244 contracts as of Tuesday, June 17. From Tuesday-to-Tuesday this past week, Dec25 was down 9.75 cents indicating the net-short position likely increased again. The record large noncommercial net-short futures position is 266,067 contracts from the week of February 20, 2024, meaning there is room for Watson to continue to add to its holdings.
Long-Term Theoretical Positions (from Monthly Analysis):
- Short Dec25 futures at $4.6025 on January 31
- Through a series of short option positions, this price has been raised to roughly $5.01
- I am not an option specialist, one of those who plays chess while the rest of us play checkers. I tend to use seasonality and volatility (2 of the 3 filters in Market Rule #3: Use filters to manage risk), leaving the rest of the Greeks (marketing tools, not people from Greece) to the professionals.
- Long Dec26 futures near $4.62, also on January 31
- Based on the bullish spike reversal on the continuous monthly chart from August 2024
- Dec26 (ZCZ26) is priced near $4.54 Wednesday morning
